What’s the answer for costly online returns?

Discussion
Sep 28, 2015

A new survey from HRC Advisory (HRC) identified online returns — with their high occurrence and direct and indirect costs — as the biggest pain point facing retailers seeking to transform their supply chains to a customer-centric, omnichannel model.

In the survey of 20 North American supply chain executives from a wide range of retailers, 95 percent said their biggest issue in transforming their supply chain was how to mitigate online returns.

The survey found online returns can run as high as 30 percent and "be quite expensive," according to the statement from HRC, the retail advisory firm.

Of the supply chain executives, 85 percent noted the high cost of online returns to a store, particularly when the item is not carried in that store. When returned to a fulfillment center or supplier, retailers incur incremental freight costs, the possibility of shipping-related product damage, as well as a lost opportunity for a replacement sale in-store, HRC noted.

HRC said all of the retailers surveyed agreed that fully integrating inventory and fulfillment between the online and physical store channels would help overall omnichannel logistical challenges.

Macy's free returns

Source: macys.com

However, the study found stores greatly held back by outdated systems and infrastructure:

  • About half (52 percent) admitted that they do not have the systems in place to provide the required visibility to inventory in each store;
  • Only 35 percent had online capabilities such as vendor drop ship, or order in-store and deliver to the customer;
  • More than half (55 percent) of the retailers continue to have dedicated fulfillment facilities for each channel. Only 25 percent of these retailers are launching initiatives to combine these;
  • Only half of the retailers are able to ensure fulfillment from the closest location when an item is available in multiple locations and distribution centers;
  • Only 53 percent of retailers are currently able to present customers with accurate inventory information and to fulfill the entire order at the time of online purchase.

The findings come as countless surveys have shown consumers have high expectations for friendly return policies. A survey of 1,000 consumers sponsored by Synchrony Financial in May 2015 found hassle free returns was noted by 41 percent of respondents as important, with favorite benefits such as no time limit, no need for a receipt and free postage on returns.

Which supply chain enhancements would do the most to reduce the losses caused by online returns? Do you see return policies needing to tighten in order to reduce the burden of online returns?

Braintrust
"There are some very interesting third-party plays evolving in this space. Just as retailers are beginning to embrace outside platforms for delivery, I see potential for third-party reverse logistics too."
"One possibility is to offer perks or incentives to customers who do not make returns or do so minimally. In fact, Jet.com offers an option to get an extra discount on items where the buyer waives the right to return it, at the time of purchase."
"I’m not sure why this is new news. Return rates of direct-to-consumer orders has always been crazy high — especially of apparel. The catalog guys considered themselves lucky if they got down to a 20 percent return rate."

Join the Discussion!

15 Comments on "What’s the answer for costly online returns?"

Notify of

Sort by:   newest | oldest | most voted
Keith Anderson
Guest
2 years 2 months ago

Reverse logistics are definitely one of the most challenging aspects of modern retailing for online-only and omnichannel retailers alike.

Customer policies are likely to evolve, with more retailers encouraging shoppers to return online orders through efficient channels.

Internal policies (like how inventory and labor are allocated) also require updating.

There are some very interesting third-party plays evolving in this space. Just as retailers are beginning to embrace outside platforms for delivery, I see potential for third-party reverse logistics too.

Ken Lonyai
Guest
2 years 2 months ago

A huge advantage of brick-and-mortar retailers over Internet-only competitors is returns. A consumer that buys in the store, returns to the store with the primary cost to the merchant being handling and reshelving — part of overhead already. So the quandary for web-only based merchants is to stay competitive with liberal return policies while mitigating costs.

One possibility is to offer perks or incentives to customers who do not make returns or do so minimally. In fact, Jet.com offers an option to get an extra discount on items where the buyer waives the right to return it, at the time of purchase.

Paula Rosenblum
Guest
2 years 2 months ago

I’m not sure why this is new news. Return rates of direct-to-consumer orders has always been crazy high — especially of apparel. The catalog guys considered themselves lucky if they got down to a 20 percent return rate.

Way, way back in the day, I did a consulting gig designing a returns processing system for a catalog retailer “Chadwicks of Boston” (really dating myself now).

Three things were critical to that returns system:

  1. A human to decide the “state” of the product (ready to re-sell, needs cleaning, needs pressing).
  2. Materials handling systems to route the product in the appropriate direction depending on #1.
  3. Technology to keep track of the product, whether it was being steamed in house, out for cleaning, or back on the shelves.

Honestly, it’s not rocket science and it’s not new. But I do think retailers need to understand that the high return rate for product sold online is not going down anytime soon.

Dick Seesel
Guest
2 years 2 months ago

Retailers trying to make their omnichannel initiatives more consumer friendly are caught in a bind. Any attempt to tighten up return policies (especially returning online purchases to physical locations) is likely to backfire, because most other competing retailers are accommodating these returns. On the other hand, as the article points out, returning web-only goods causes all sorts of reverse logistics problems — not to mention the pressure it puts on limited space in stores’ stockrooms.

At a point where stores are very cautiously hiring for fourth quarter, the potential is high that customer returns, BOPIS and other omnichannel tactics will backfire on adequate levels of customer service — checkout lines, fixture replenishment, and so forth. It’s no wonder that stores like Macy’s and Kohl’s (with growing omnichannel business) are trying to figure out how their new outlet stores can relieve some of the reverse-logistics pressure.

Ryan Mathews
Guest
2 years 2 months ago

The simple fact is that online commerce puts a much greater onus on the retailer to maintain inventory accuracy, improve communications, and, of course, increase total transaction speed or — put another way — decrease total transaction time.

You simple cannot build a 21st century supply chain using mid-20th century tools. And the supply chain investment question isn’t optional. Blow enough returns often enough and you’ll quickly run out of customers.

Tightening policies is an artificial Band-Aid, it will slow the bleeding, but it won’t heal a serious wound. Sure, you can reduce returns to zero simply by stating you accept no returns, but you wouldn’t stay in business very long — especially in a market where your direct competitors take everything back.

Mohamed Amer
Guest
2 years 2 months ago

Tightening up returns policies may help margins but will backfire in attracting new, or keeping existing, customers. This is an area that is difficult to roll back once the customer is accustomed to free shipping and free returns.

As to the supply chain, reverse logistics has been a perennial stepchild. It really starts with having full visibility of your inventory and status. It also requires that your distribution centers are designed to handle the flow of more than one channel. The store also needs to become an integral element of the supply chain (receive and send goods) and not only an end point.

Cathy Hotka
Guest
2 years 2 months ago

Predictable sizes.

For decades, men have enjoyed linear sizes (16×33 shirts, for instance) while women have had to guess whether they’re a Medium or a Large. If they’re choosing numbered sizes, there’s no way to know whether a size 6 by one manufacturer is the same as a size 6 by another manufacturer.

Customers routinely purchase several of the same item in different sizes, then return the ones that don’t fit. When I worked at NRF and raised the issue, I was told that unpredictable sizes were a mechanism to keep women loyal to a given brand. I didn’t believe it then and it seems particularly dumb now.

Camille P. Schuster, PhD.
Guest
2 years 2 months ago

If 50 percent of companies can not fulfill shipments from the nearest location, then returns are certainly going to be a problem. However consumer expectations are set by the best return processes. Are these return percentages for online similar to or out of line with catalog returns? In addition to improving the fulfillment systems, retailers need to pay attention to how products are portrayed online. For example, is all the required information easily available and are the colors portrayed accurately? For example when a burgundy color online is a rust color on the actual item, the item is likely to be returned.

Ralph Jacobson
Guest
2 years 2 months ago

The genesis of high returns percentages is, at the very core, targeting. Ensure you are selling to the audience at which you intended. From there, assess your processes internally. We typically find more opportunity in the physical processes themselves than the technologies installed in the enterprise. Sure, there are outdated systems out there. However, I can tell you that the typical utilization of even those systems that are more than a decade old is often less than 10 percent of the old systems capabilities. Beyond that, look at your distribution networks. Are they optimized logistically? Do you know how to tell if they’re optimized? There are many places to look for cost extraction.

I don’t believe the rising costs are primarily a result of customer returns policies, but are because of internal processes more than anything.

Roger Saunders
Guest
2 years 2 months ago

Merchants have to be able to perform on fulfillment. If a customer asks for a size 7 1/2 shoe, you can’t send a size 7 and hope it will stretch.

Return policies being tightened is not the path to addressing the problems that Tom lays out as the challenges of systems and infrastructure. Based on the September Prosper Monthly Consumer Survey, the leading “care-abouts” of consumers when shopping online are: 1. Low prices, 2. Free shipping, 3. Flexible return policies, 4. Website ease of use, 5. Pick-up and return at-store options, 6. Live customer service associate with whom to speak.

This survey has 6,754 consumers, and the standards of those respondents are even higher for Amazon, the leader in the business. The answer is: ramp up the game, or stay on the porch and watch the game be played by others.

Gajendra Ratnavel
Guest
2 years 2 months ago

Online retailers need to really consider the behavior they are reinforcing with return policies. For example, an online shoe retailer I know in Canada comes to mind. They are amazing and a little shocking to me because they allow no-hassle returns, great prices, an amazing selection and they pay for return shipping. We are talking about shoes here. Why wouldn’t the customers just purchase to try them on and return them? Customer might go through 10 pairs before they buy the one they like.

Martin Mehalchin
Guest
2 years 2 months ago

The ultimate solution here is to attack the root causes of returns. In the apparel category, sizing is probably the biggest cause and among the hardest problems to solve. There are a bunch of startups popping up to offer sizing solutions. Metail out of the UK, dropped by our offices last week and we were impressed by the depth of their approach.

Dan Raftery
Guest
2 years 2 months ago

Online returns are part of the cost of doing business online. So is delivery. Although both can appear to be free, shoppers are not idiots. They may like the appearance of free, but recognize the service needs to be paid for somehow, just not in your face.

Some of the airlines are moving in the opposite direction with the unbundling of fees. Gone are the days when airlines were the leaders in loyalty marketing.

James Tenser
Guest
2 years 2 months ago
I don’t believe retailers have much of a choice but to maintain liberal return policies in product categories where sizing is important. It’s a competitive necessity. So let’s be clear: This is a conversation about apparel and shoes, not groceries and hard lines. The number one strategy for squelching the cost of returns for a multi-channel apparel business is undoubtedly to find ways to more consistently deliver the correct item in the first place. That means pressuring suppliers for better information about sizing and providing online tools and impeccable guidance for shoppers. “Remembering” past purchased items that fit well and providing a personalized fit-profile beside each new item browsed online may be the killer app here. This is a potential loyalty-builder that is not about price—it’s about shopper and retailer co-investing in a better outcome. It’s worth considering that online shoppers are not fond of the return process, free or not. The effort of documenting, re-packing and dropping-off is quite possibly a greater inconvenience than the cost of shipping. Tighter policies are not the answer—in… Read more »
Craig Sundstrom
Guest
2 years 2 months ago

I agree with Paula that this doesn’t seem like a new issue, except perhaps that it might be a bigger issue now because of the popularity of the inane idea that all that matters is getting volume…all those other little things, like expenses, will magically take care of themselves. Guess what folks: they don’t, and returning to sound business models that emphasize the bottom line as much (or more) than the top will help. Maybe we’ve found a place for the pre-internet generation(s) after all.

wpDiscuz
Braintrust
"There are some very interesting third-party plays evolving in this space. Just as retailers are beginning to embrace outside platforms for delivery, I see potential for third-party reverse logistics too."
"One possibility is to offer perks or incentives to customers who do not make returns or do so minimally. In fact, Jet.com offers an option to get an extra discount on items where the buyer waives the right to return it, at the time of purchase."
"I’m not sure why this is new news. Return rates of direct-to-consumer orders has always been crazy high — especially of apparel. The catalog guys considered themselves lucky if they got down to a 20 percent return rate."

Take Our Instant Poll

How likely is it that retailers in the next few years will tighten return policies in order to reduce the burden of online returns?

View Results

Loading ... Loading ...